A family trust set up by Bart Lassnig and Qian Zhou within months of their marriage was treated as if they were business partners in a property investment when their marriage foundered within three years. In dispute was division of trust net equity totalling $1.9 million; capital profits from increases in Auckland property prices over the last decade.
Family trust assets do not generally form part of relationship property to be divided 50/50 when a relationship ends. Failing agreement between estranged spouses, rules in the Family Proceedings Act are used by judges to unravel family trusts as being ante-nuptial or post-nuptial settlements.
This Act gives courts wide discretion as to how a family trust might be divided.
Attempting to establish guidelines, judges have laid down a formula for calculation of the shared interest in family trust assets: neat in expression; woolly in application. The figure conjured up by this formula is then divided at the court’s discretion.
The formula is what were trust benefits enjoyed by a spouse at the time a relationship comes to an end, compared with what would have been the outcome if the relationship had continued.
Applying this test to a typical discretionary family trust is problematic; trustees commonly have the power to do anything and everything with trust assets at any time. Evidence turns to hypothetical speculation about spouses’ expectations regarding trust assets.
The High Court was told Mr Lassnig and Ms Zhou met in June 2012, married two months later and then separated within three years.
Within nine months of meeting, they had set up a family trust, purchasing three Auckland properties funded primarily with bank debt coupled with cash contributions from each. Of their joint cash contributions: Ms Zhou contributed just over 82 per cent; Mr Lassnig eighteen per cent.
Ms Zhou brought to their relationship a background in property management. She retained as her separate property other Auckland properties she held through both a separate family trust and a property-owning company.
Evidence was given that both had been married at least once before and had children from previous relationships.
Respective financial contributions to their family trust were meticulously recorded in Trust accounting records.
Both agreed their family trust was intended to provide both a home for them to live in and to support them on retirement. These plans turned to dust with the end of their relationship.
The Court of Appeal treated their family trust as if it were an investment partnership; surplus capital after repayment of loans each had made to the Trust and repayment of expenses each had made on behalf of the Trust is to be divided in rough proportion of their initial capital contributions: 80/20.
On this calculation, Mr Lassnig’s return of cash advanced plus his twenty per cent share of capital profits comes to some $682,000 – based on 2021 valuations for the Trust properties.
Ms Zhou is to assume sole control of their Trust assets after Mr Lassnig’s share is cashed out, with Mr Lassnig removed as both trustee and beneficiary of their family trust.
Zhou v. Lassnig – Court of Appeal (24.05.24)
24.137